How the new stamp duty holiday could impact you
Since 7th July of this year, a new SDLT (stamp duty) regime has been introduced by the Chancellor Rishi Sunak which will remain in place until the end of 31st March 2021. This action raises the stamp duty threshold which makes it likely that in the majority of transactions, there will be no stamp duty for the buyers to pay.
This decision has been taken in order to kick-start the property market once more after it slowed significantly during the Covid-19 lockdown.
What is stamp duty?
Stamp duty is a tax on residential property or land transactions which is an additional payment on top of the purchase price.
Normally stamp duty is applied where the property is purchased for more than £125,000 with differing rates applicable depending upon the price being paid. For first time buyers, stamp duty comes into effect after the first £300,000 as long as properties aren’t purchased for over £500,000.
The usual rates of stamp duty payable are based on the value of a property:
- Up to £125,000: 0%
- £125,001 to £250,000: 2%
- £250,001 to £925,000: 5%
- £925,000 to £1.5m: 10%
- Above £1.5m: 12%
(Different rates do apply for parties buying second properties)
What is the new threshold and how might it affect my prospects of buying a property?
The new 0% threshold is set at £500,000 so any transactions completed before the 31st March 2021 will be subject to the stamp duty holiday if the purchase price is at or below this figure.
During this period, stamp duty will be payable at a rate of 5% on the purchase price above £500,000 and up to £925,000. The other rates above that figure remain the same.
For those now looking to move, paying no stamp duty on an extra £375,000 can save between £5000-£15,000. That is a significant saving and provides the perfect opportunity for people who are realising that they have outgrown their current home to take the next step up the property ladder.
The stamp duty holiday does also benefit anybody purchasing a second home. Only the 3% stamp duty surcharge will apply on the first £500,000 of the purchase price rather than being charged on top of the rates previously applicable.
The stamp duty holiday was announced to encourage potential buyers back to the property market. For those already looking or even in mid-transaction before the Covid-19 outbreak, the savings on stamp duty may be enough to convince them to continue their search and buy a property in this time. For anyone else wondering if this is a good time to start looking, they will have to weigh up the potential savings from the stamp duty holiday against the possibility of house price fluctuations to decide whether they should act or not. It is certainly going to be an interesting few months in the residential property sector!
Please note, this new threshold is applied to England and Northern Ireland only.
For more information, please contact Tim Farrington on at firstname.lastname@example.org
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